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General Motors quarter profits fall, focuses on mid-decade upswing

by Rachel Tan
Oct 31, 2012

General Motors Co. shares moved higher Wednesday after the auto giant turned in third-quarter earnings which, although down from the year-ago quarter, substantially topped Wall Street forecasts.

Executives said they were optimistic that new production strategies in the next five years will drive sales and efficiency.

The Detroit-based auto giant’s net income fell 13 percent to $1.83 billion, or 89 cents per diluted share, from $2.12 billion, or $1.03 a share from the year-ago quarter. The latest quarter’s per-share earnings outpaced the 60-cent estimate of analysts surveyed by Bloomberg.

In New York Stock Exchange trading, GM shares climbed $2.25, or 9.5 percent, to $25.50.

Though earnings decreased, revenue increased 4 percent to $2.3 billion from $2.2 billion in the same quarter last year.

Sales were driven primarily by an upward trend in North America despite uncertain Asian and European markets. General Motors battled union strikes in South Korea and navigated a stormy economic climate in Europe. Steadier Chinese and South American markets were main sources of international income this year.

“While we still have a lot of work to do, especially in Europe, it is encouraging to see our results begin to reflect the discipline we are bringing to bear on the overall business,” said Dan Ammann, senior vice president and chief financial officer of General Motors.

General Motors announced strategies to loosen pressure on the supply chain and improve cash flow in its European market. Among other things, the company is seeking to diversify its European management structure, reduce excess inventory and rework its costly information-technology platform.

Officials also plan to cut fixed costs in the next couple of years, through 2015.

In view of these changes, GM’s focus is on a sunnier mid-decade outlook. New model releases are also in the works to pique consumer interest.
General Motors plans to release 23 new models and 13 new engines by 2016. The Mokka, Adam and Cascada models lead – 45,000 orders have already been placed for the Mokka with strong interest in Germany and Russia.

Plans are ambitious but expectations remain cautious. “We’re being conservative on our assumptions in volume and revenue,” said Chief Executive Officer Dan Akerson.

Ford Motor Co, faced with the same challenges abroad. reported a strong quarter Tuesday, also driven by North American sales.

Though similar companies, analysts foresee possible differences in performance. “I have more confidence in the Ford plan than the G.M. plan,” said Peter Nesvold of Jefferies & Company, Inc.
General Motors will likely spend time on its restructure in Europe towards the mid-decade, making the Europe situation more about maintenance-not growing, Nesvold said.

General Motors can expect stronger domestic pick-up vehicle demand next year due to an upward trending housing market, the analyst continued. A new pick-up model will be released next year. The automaker has not redesigned the pick-up since 2008.

Nesvold predicts smaller cars will be winners more at Ford, with the Ford Fusion flying off car lots. Its aesthetic appeal and price point is attractive. “It looks like an Aston Martin,” Nesvold said.

In the first nine months, General Motors had net income $4.99 billion, or $2.38 per diluted share, sliding 41 percent from $8.47 billion, or $4.30 per diluted share in the same period last year. Year-to-date revenue decreased 8 percent to $6.6 billion from $7.2 billion.

General Motors remains partly government backed as a result of the 2009 auto industry bailout.